Moody’s Upgrades Seplat’s Corporate Family Ratings

Moody’s Upgrades Seplat’s Corporate Family Ratings

Moody’s Ratings has upgraded Seplat Energy Plc’s long-term corporate family rating (CFR) to B2 from Caa1 and probability of default rating (PDR) to B2-PD from Caa1-PD. The rating note also highlighted that the company’s rating outlook has changed to stable from positive.

The rating agency said the Seplat rating is reviewed to align with its latest upgrade on Nigeria’s government bond rating to B3 from Caa1 while changing the outlook to stable from positive

Moody’s said its rating action on Seplat is a direct consequence of the Nigeria sovereign rating action and in particular the change in the country’s foreign currency ceiling to B2 from Caa1.

It highlighted that Seplat is exposed to Nigeria’s economic, political, legal, fiscal and regulatory environment and therefore has interlinkages with Nigeria’s sovereign rating.  Seplat’s exposure to currency convertibility risk remains relatively low because it receives most of its revenue in US dollars.

Ratings analysts explained that Seplat dollar proceeds from oil exports are required to be repatriated to Nigeria within 90 days of receipt, after which Seplat can transfer these US dollar funds back into offshore bank accounts.

To date Seplat has had no restrictions imposed by the Central Bank of Nigeria, and the company targets to have 70% of total cash balances in USD and 70% of that in offshore accounts, with a minimum balance of $150 million.

Moody’s Seplat’s operating and financial performance is strong, despite the recent large acquisition of Seplat Energy Producing Nigeria Unlimited (SEPNU) and the recent low oil price environment.

“We expect yearly average production will surpass the 120 thousand barrels of oil equivalent per day (kboepd) level from an average of 45 to 50 kboepd. The company’s 2025 guidance is 120 – 140 kboepd. Furthermore, Seplat’s 2P reserves have also increased to 886 million barrels of oil equivalent (mmboe) from 478 mmboe as a result of SEPNU’s acquisition”.

For 2025 and 2026, rating analysts project the company’s leverage to be between 1x and 1.5x, while interest coverage will remain over 7x on a pro forma basis, including SEPNU’s production.

The company’s relatively low unit production costs of below $30/bbl and low operating expenses of $15.2/bbl in 2024 provide a degree of protection during a low oil price environment.

Furthermore, the ratings analysts said they consider that Seplat’s business profile improvement following SEPNU’s acquisition, cash flow stability, good liquidity, and sizeable daily production, as well as 2P reserves, could support a higher rating.

Moody’s added that the company’s operational exposure to Nigeria constrains the rating to no higher than one notch above the sovereign rating.

The B2 CFR reflects Seplat’s leading exploration and production (E&P) position in Nigeria with long-term oil and gas field licensing agreements; investment in gas projects, such as the ANOH project; as well as its ability to withstand low oil prices in the near term with positive free cash flow (FCF) generation.

Analysts see this as a consequence of its low cost of production and more stable contracted gas revenue; strong credit metrics with Moody’s adjusted gross debt to EBITDA leverage for the next 12 to 18 months between 1x and 1.5x.

In addition to the company’s good liquidity position that provides a buffer against a potential decline in its operating cash flow from lower oil prices over the next 18 months.

Conversely, Moody’s said the rating is constrained by the company’s exposure to Nigeria and its political, legal, fiscal, and regulatory environment; exposure to oil price volatility; and highly cyclical market conditions.

The constraint on the ratings includes a degree of operational and asset exposure in the Niger Delta that increases the company’s event risk; and foreign currency transfer and convertibility risk stemming from the requirement to repatriate proceeds from oil sales to Nigeria within 90 days of receipt for a short period, typically 24-48 hours.

Seplat’s liquidity profile is good and supported by $335 million of cash on the balance sheet. The company also has a $350 million revolving credit facility (RCF) due in December 2026 of which $100 million is drawn as of 31 March 2025.

“We expect Seplat to also benefit from positive operating cash flow to support dividend distributions and capital spending of around $260 million to $320 million per year for the next two years”.

The company has a track record of targeting to maintain around 70% of its USD cash in offshore accounts, which gives it access to US dollars for debt servicing.

Moody’s said the stable outlook reflects an expectation that Seplat will maintain stable credit metrics over the next 12-18 months and a good liquidity profile despite the current low oil price environment.

The stable outlook is also in line with the Government of Nigeria’s stable outlook, reflecting Seplat’s close credit links to the Government of Nigeria and operational exposure to the country’s political, legal, fiscal, and regulatory environment. #Moody’s Upgrades Seplat’s Corporate Family Ratings NATO Chief Calls for Boost in Military Budgets